Corruption Is a Capitalism-Weakening Mistake
Canada is currently embroiled in a scandal in which the government has been credibly accused of pressuring its own attorney general to allow negotiation of a favourable deal with a Montreal-based global engineering firm. The deal is of the type that includes multi-million dollar bribes to Libyan officials in exchange for construction contracts.
Those who debate simply the legality, or even the morality, of this practice are missing the point. In the words of Talleyrand: “It is more than a crime. It is a mistake.”
Many look at the issue, which threatens to overwhelm the government of Prime Minister Justin Trudeau, as a sign of political corruption. If anything, the problem is the corruption of the soul of capitalism, a virus that is infecting virtually all liberal democracies to some degree. But because others do it does not make it right; it just makes it more virulent. Moreover, because others do it does not make it economically advantageous. Corruption, like other forms of crony capitalism, doesn’t create wealth, it just shifts it. It distorts our markets, leads to unproductive use of capital - financial and human - and streams too many resources away from productive activities to unproductive ones like lobbying.
The issue revolves around the use of deferred prosecution agreements (DPAs), a practice that the United States and other liberal democracies increasingly engage in. In fact, when it comes to DPAs, Canada has been late to the party, introducing the practice just three years ago. The United States has allowed DPAs to undermine full enforcement of the Foreign Corrupt Practices Act since the 1990s.
The Canadian government did not encourage use of a DPA to solicit bribes from SNC-Lavelin. They neither sought nor accepted personal bribes nor financial contributions in return. They did it, essentially to discourage SNC-Lavelin from moving operations out of Canada. They did it to save jobs. And that was the big mistake. Corporate corruption does not ultimately lead to maintaining or creating jobs; it only undermines the market economy that is best able to generate them.
A country that tries to bolster its economy by turning a blind eye to bribery in foreign countries will face the same problem in its own. We seek to deter corporate corruption for a reason. It will ultimately corrode our economy. It is difficult, perhaps impossible, for any company to pursue different sets of ethics on different sides of the ocean without the lower ethical standard finding its way back home. Foreign corrupt practices are a boomerang, one that threatens to bounce back and injure any country that permits it.
SNC-Lavelin is a good example of that. The company has been investigated regarding a number of allegations under Canada’s Corruption of Public Officials Act, with credible allegations of kickbacks to both foreign and domestic officials. In India, for example, an investigation led to the dismissal of several government officials after SNC-Lavalin was credibly accused of engaging in bribery to win a large infrastructure contract to renovate and modernize electrical power stations.
Bribery is a hard practice to kick. Many point out that SNC-Lavalin is under new management, and the corporate executives who oversaw the Libyan kickbacks are gone from the scene. But is that dispositive? The purpose of law is not just to penalize people or companies for doing wrong; it is to deter them from doing wrong in the future. The best deterrence is a clear law, sharply enforced.
Seeking to prevent bribes of foreign officials is not naive, it is farsighted. Doing right while others may be doing wrong is not an economic cost, it is an economic necessity. Preventing the missallocation of resources is not a waste of time and energy, it is ensuring they are put to their best use.
It comes down to this: The only way to pursue the success of the marketplace is to ensure respect for it.
